Neonode Inc (NEON) 2007 Q4 法說會逐字稿

Greetings and welcome to the Neonode Incorporated fourth quarter and year end 2007 earnings conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Rudy Barrio, Allen & Caron for Neonode. Thank you. You may begin.

Thank you, Doug. Good morning and welcome to Neonode Inc.'s first investor conference call to discuss its financial results for the Company's fourth quarter and year ended December 31st, 2007. As mentioned by Doug, I am Rudy Barrio of Allen & Caron, Investor Relations.

Before we start this morning's call, there are a couple of items I would like to cover. Many of you received a copy of the press release announcing the Company's results for fourth quarter 2007. It was released yesterday afternoon, March 10th at 4:01 p.m. Eastern.

If you did not receive a copy of the press release, it's on Neonode's website at www.neonode.com and in the client section of our website, www.AllenCaron.com. You may also call our office in New York at 212-691-8087, and we will e-mail it to you right away. It is also posted on Yahoo! Finance.

As mentioned earlier, this call is being recorded. A replay will be available through March 18th, 2008, and may be accessed from North America by calling 877-660-6853, and entering conference call ID number 276148. International callers should dial 1-201-612-7415.

This call is also being broadcast over the Internet, and may be accessed on the Company's website at www.neonode.com, or by visiting Precision IR's website at www.investorcalendar.com. A replay of the webcast will be available immediately following this call, and will continue for seven days.

Additionally I have been asked to make the following statement. Certain statements in this conference call are forward-looking statements that involve risks and uncertainties, including statements regarding future products and technology developments. Such statements are only predictions and the Company's actual results may differ materially from those anticipated in these forward-looking statements.

Factors that may cause such differences include but are not limited to, the ability of Neonode to develop and sell new products and technologies, these factors and others are more fully discussed in the documents the Company files from time to time with the Securities and Exchange Commission, particularly the Company's most recent Form 10-K and Form 10-Q. Neonode and Neonode Logo are register trademarks of Neonode Inc.

Before introducing our speakers I would like to mention the Company's intention this morning to give a detailed description of Neonode's business model at the beginning of their presentation on this call. This will answer any anticipated questions, and help those who don't know Neonode's business plan.

The call will indeed be a bit longer than usual, and for that I apologize in advance. With us this morning are CEO and President, Mikael Hagman, and CFO, David Brunton.

I would like to turn the call over to Mikael. Good morning Mikael.

Good morning Rudy. Thank you. Welcome to our first conference call. Thank you for joining us today. With me on the call is David Brunton, CFO of Neonode. We would like to start the call with a detailed description of our business model, our core capabilities, and our overall strategy of the Company.

As this is our first call, I want to take the time to make everyone comfortable. We will also talk about many of our accomplishments during 2007, as well as our key focus areas of 2008. Dave will walk you through the financials of 2007 and the fourth quarter. Following that, we will get into more details about 2008, and Dave and I will conclude by answering your questions.

First off, Neonode is poised for dynamic growth, through a combination of licensing our technology, and selling our own products in the mobile device industry. The cornerstone of Neonode is its Intellectual Property, and the Company's extensive experience in developing innovative touchscreen technology. I would like to point out that Neonode has existed and worked on developing its technology, that delivers a unique user experience, since 2001. It is only in the last year that we are seeing an explosion of commercial touchscreen devices being created, by the likes of Apple with its iPhone, and HTC with the HTC TouchFLO.

Our current product the Neonode N2 is the world's smallest touchscreen mobile phone available in the market. It fits in the palm of your hand, and is designed to navigate the menus and functions with taps and sweeps of your thumb. The N2 incorporates our proprietary touchscreen, along with unique technologies to deliver a unique user experience.

Along with generating revenue and profit, our efforts in the mobile device industry will showcase our technologies and expertise. It allows us to enhance our capabilities in understanding both the user and the experience that he or she is looking for. I would like to talk about a few of the key industry metrics in the mobile phone industry.

According to the Gartner Group, there were approximately 1.2 billion cell phones sold last year. The growth of this market is expected to be more than 10%, both in 2008 and 2009. Some of the key categories since growing our smart phones and multimedia devices, which is where Neonode N2 competes. Both of these categories are expected to grow dramatically in the coming years.

There are very interesting underlying trends in this market that are important to Neonode. Production capacity of off-the-shelf technology availability is increasing. User experience is in focus, as well as touchscreen. Needless to say, we are in a very exciting growth-oriented market with cell phone technology. I will tell you how we are progressing with our Neonode M2 sales in a bit.

Right now I would like to talk about our two core technology platforms, which are the backbone of Neonode. The first is zForce, our optical touchscreen technology, and the second is Neno, our user interface.

zForce, the optical touchscreen technology was patented by Neonode in 2002. It uses infrared light that is projected over as a grid on the screen. The light pulses 120 times per second, so the grid is constantly being refreshed. Coordinates are being produced on the screen, and are then converted into mathematical algorithms when your fingers move across the screen. This input metric is unique to Neonode, and is enabled by zForce technology.

Currently there are two other touchscreen technologies available in the market, Capacitive and Resistive. Capacitive technology is the technology that the iPhone uses, and Resistive is what you would find on most stylus-based PDAs. Resistive technology is pressure-sensitive and requires a stylus to activate, best used for detail work and selection of a particular spot on the screen, but not for sweeping or motion, like zooming in or zooming out.

Capacitive technology is what you would find on a laptop computer mouse pad, it is very good for sweeping and motion. The screen actually reacts to tiny electric impulses of your finger. It only works if you have unimpeded contact between your finger and the screen. I am sure you have all used one or both of these technologies on your computers or PDAs.

Our zForce technology has a number of advantages over these technologies. There are no additional layers added to the screen that dilutes the screen resolution and clarity. Layering technology is required to activate the Capacitive and Resistive technologies, and can be very costly.

zForce grid technology is more responsive than the Capacitive screens, and as a result it is quicker and less prone to misreads. It allows movement and sweeping motions, as compared to the point sensitive stylus-based resistive screens. zForce, an abbreviation for zero force necessary, means that you do not have to use any force to select or move icons on a screen, like you would with a stylus. It is cost effective, in terms of bill of materials, as well as having an extremely simple manufacturing process, compared to the expensive layered capacitive and resistive screens.

zForce allows multiple methods of input, simple finger taps to hit keys, sweeps to zoom in or out, and gestures to write text or symbols directly on the screen. In short, zForce incorporates some of the best functionalities of both the capacitive and resistive touchscreen technologies, but at a much lower cost. It works in all climates, and can be used with gloves, unlike the competing technologies. It is ideal for rugged and waterproof applications.

Because of its uniqueness and flexibility, we believe that our zForce technology represents a tremendous licensing opportunity for Neonode. The market is vast, given the current rapid increase in touchscreen-based devices, such as cell phones, PCs, media players, GPS navigation devices, et cetera. Our experience also tells us that great hardware technology is very limited, without great software to go along with it.

We have developed our software user interface, Neno, with a team of engineers that came to Neonode in 2004, directly from Microsoft and Windows Mobile Development team in Sweden. Neno runs on Windows CE, and it is completely unique. Neno is designed to operate complex and full feature applications on a small screen. It allows for a number of input methods, and is designed to deliver high precision, fast response, and ease of use on a complex device.

As previously stated, we have defined our route to market as two-fold. The most immediate route is to build our own devices and market those in selected segments and markets. We have initially focused on selling our own touchscreen mobile phone handset, the Neonode N2. We are in the process of developing a network of value-added resellers that have local relationships with retailers and carriers in their respective territories.

The network of VARs helps us quickly expand our sales and marketing capabilities around the world. We are currently present at a wide selection of well-established retailers and carriers across Europe. Dixons Stores Group, Telenor, [Knac], MediaMarkt, and Vodafone to name a few. All of this enabled by our strong partner network.

The other opportunities that we see are to license zForce and Neno to companies that will benefit from our superior technology and our extensive experience. We are currently in talks with numerous device manufactures, with one license agreement in place already with a major phone manufacturer. We expect this as well as other development activities from licenses to be released to the market during 2008.

As we productize our current technologies as well as those under development, it is our expectation that license revenue will build significantly in 2009. As you are probably aware, licensing technology is generally a long process. Once a customer selects our technology, we are anticipating that it takes up to 12 to 24 months before we see any appreciable revenue.

So in summary, our business model is based on our core capabilities within touchscreen technology. It combines technology licensing, and granted product sales that compete in the broad range of the mobile device industry. Our current product is focused in the mobile handset market. We are relying on proprietary Intellectual Property, and we have a widespread experience in touchscreen technology that delivers a completely unique user experience. In 2007 we executed the first part of our strategy focusing on the product side of the business model.

The Neonode N2 was presented at 3GSM in Barcelona to great critical acclaim. The number of hits from Google ran from 300,000 to over 3,000,000. As we have continued to market the phone, we now have close to 6 million hits on the web. We made our first commercial shipment of the N2 in quarter 3 to Greece. At the end of the calendar year we have established a presence in 13 markets.

Currently our market is predominantly in Europe. It has an advantage in that it is less carrier driven, and has a higher average unit selling price per phone than any other market in the world. In late December we shipped a substantial number of N2s to our distributor in India, Turnstone Mobile Media. We have great expectations in India, as it is the fastest-growing mobile phone market in the world.

To support our sales efforts, we have built a complete infrastructure of customer support and technical service, that will handle customer calls from anywhere in the world. This is done together with world class partners, such as Sykes. Our phone supports all local languages, and has a number well-known carriers, such as Vodafone, [HIB], Helio, and Telenor, have included our phones in their core product assortment, and are selling it with carrier subsidies. We also have a strong relationship with our manufacturing partner Balda and their plant in Malaysia. Together we have the ability to increase production volumes to meet demand from the markets and our expansion plans.

Our retail price in Europe is approximately $499, including local VAT, and up until December 31st, we had shipped in excess of 31,000 phones to our customers. 2008 will see us continue to build our distribution base into larger markets, and we will continue to refine and develop the Neonode N2.

We will continue to add resellers in both the Americas and Asia, to enable the next wave of rollout of current and future products. We will expand through our newly-formed joint venture with DMC, Neonode USA to increase our sales and distribution capabilities. In addition we will escalate the development efforts of our technologies that will be showcased in the next generation mobile phones. This phone will include a number of never-before seen features, with an eye for meeting customer demands, and the needs of carriers worldwide.

A key priority of mine is to work on advancing our licensing strategy. I anticipate that significant revenue from this activity will build through the early part of '09, considering the design cycle of our clients.

After Dave has gone through our financial results, I will come back and talk in more detail about 2008, and give some indications to what we are expecting. Dave.

Good morning. This is Dave Brunton. I also wanted to welcome you to our first conference call after the merger with SBE and our subsequent NASDAQ listing. This has been a year of transition for the Company. Mikael has talked about our strategy, and the specific activities we are pursuing to support these strategies, and before I get to the numbers, I want to recap some recent highlights.

In August when we went public through a reversed merger transaction, we took a very important step in determining the future direction of the Company. Our public company status has provided access to the necessary working capital that we need to grow the Company, and we have taken advantage of that access. We have been able to raise approximately $10.7 million since September 2007. This includes the $4.5 million private placement announced last week. We ended 2007 with cash of $6.8 million, compared to cash of $360,000 at the end of 2006.

Now to the results of operations for the fourth quarter and year ended December 31, 2007. We ended the year as expected. Our revenue, net loss and cash position are in-line with expectations. With that said, let me move to some of the financial details. Before we start, it is important that everyone understand our revenue recognition policy.

We recognize revenue related to the sale of our mobile phones on a sell-through basis. That is when our customers sell the phones to their customers. Although our customers do not have the right of return of any of the phones that we ship to them, and in many cases prepay all or a portion of their orders prior to our shipping products to them, U.S. accounting standards dictate that we must defer all revenue recognition until they sell-through. In the future, as soon as we are able to develop sufficient customer sell-through history, we will be able to recognize revenue when we ship product. This may take a year or more according to the current accounting standards.

It is important to note that the customers are still required to pay for the phones, pursuant to the contract terms. And as I previously noted, they do not have the right of return for any products that we ship. As a result of the deferral, the accounting revenues may not be the best metric to judge the performance of the Company. We tend to focus on phones shipped as one important measure of success and growth.

For the year, we reported revenues of $3.1 million, compared to $1.6 million in 2006, and for the quarter just ended, we reported $1.5 million in revenue, compared to $221,000 in the same quarter last year. The majority of our 2007 revenue was generated from the sale of our mobile phone products. We began shipping our Neonode N2 in July 2007, and we shipped approximately 31,000 phones in 2007. These phones have a sales price of almost $10 million.

We ended the year with $7.2 million of deferred revenue related to the prior sales of our N2, that would be recognized in future periods. The prior year's revenue was primarily related to the amortization of the up-front fee, related to a technology licensing agreement with one of the big five mobile phone developers.

Our reported gross margin for the year was 26%, compared to 21% for fiscal 2006. Profit margin for the fourth quarter was 13%, compared to 88% for the fourth quarter of 2007. Our cost of goods includes a direct cost of building the N2, plus the cost of our internal production department, accrued estimated warranty costs, customer support service, and accrued estimated customer marketing costs. The fourth quarter of 2006 revenue was a result of the amortization of the licensing agreement, and not the sales of products, and as a result of gross margin does not include any cost of build or support product sales.

Our total operating expense for 2007 was $12.7 million, compared to $4.9 million in the previous year. Our operating expenses for the fourth quarter of 2007 were $4.4 million, compared to $1.5 million for the same quarter in 2006. During 2007, we increased spending in all areas as we moved from being primarily a product development company, to a production and customer shipment oriented company.

To support these operational activities, we increased our head count from 27 employees at the end of 2006, to 45 employees at the end of 2007. During the year our engineering costs increased to complete the final development of the production rollout phases of the N2 mobile phone. We also increased our marketing and sales budget, to support our customers' efforts, and increase our sales coverage as we expanded our markets. We also incurred additional accounting tax and legal expenses related to the merger transactions, and to the NASDAQ listing, all of which serve to increase our G&A expenses.

We expect costs in both the engineering and sales and marketing departments will continue to increase, as we develop new products and technologies, and expand our product sales region into new markets. Also in 2007, we incurred significant noncash expenses related to the accounting treatment for the merger and financing transactions. These noncash charges totaled approximately $38.5 million for the year. Our bottom line net loss for the year was $49.6 million, or $4.37 per share, compared to a net loss of $5.1 million, or $0.51 per share, for the prior year. Our net loss for the quarter was $2.3 million, or $0.10 per share, compared to a net loss of $1.5 million, or $0.14 per share, for the fourth quarter in the prior year.

I would like to end today with a short discussion of our estimate for the cash flow breakeven. Our current plan has us at operating cash flow breakeven occurring around 40,000 phones sold each quarter. We will need to fund the expected increase in Accounts Receivable and inventory that will take place as we grow the Company. I will be looking to secure short-term bank or other working capital lines of credit, to cover the expected cash requirements in these areas. As we stand right now, we feel comfortable that we have sufficient cash to fund the Company's growth for the foreseeable future.

That concludes my comments, and I will turn the call back to Mikael for some final comments.

Thank you, Dave. As mentioned previously our business model is focused on both technology licensing and branded product sales. I will initially talk about technology licensing.

We have a number of initiatives that enable us to move forward in the industry, and offer our technologies to other manufacturers of mobile devices. We are in the process of productizing zForce, we formed a joint venture company, Neonode USA, together with DMC, that will be our exclusive sales and marketing arm of our technology globally. This venture will allow us to move quickly and take advantage of the current demand for touchscreen technologies and products.

We think that within a few years, keyboards and keypads with moving parts will be a thing of the past, and we want to be there with the best solution and technology. Several companies from a number of industries have shown great interest in our technology. We are currently in various stages of discussions with some of these, which we expect to bring to a close shortly. We have product design cycles bringing recurring revenue to early to mid '09.

On the development side, we will continue working on our next generation technologies. These will be showcased in phones which would be developed according to a number of carrier specifications. We expect to be able to present the initial products towards the end of the calendar year. With the above efforts, we anticipate increasing our engineering base internally, as well as utilizing key partners that we have identified.

As we look forward to the coming year, we are confident that we will ship at least 200,000 units of the Neonode N2 to customers around the world. We are expanding into new markets, while increasing our internal engineering resources, so we can respond to the new opportunities. We are also releasing a line of accessories that complement the N2, and will enhance our market presence. We do expect to see a gradual decline in the average retail price during the year. This is typical of our marketplace, and follows the normal evolution of volume benefits.

We have a lot of work ahead of us, both on the technical side, as well as on the commercial side, to ensure that we meet our 2008 targets. But we are confident that we are building a strong company in a very exciting space in a huge global industry. So to summarize 2008, we expect to get strong traction for our technology, we anticipate making good progress in our development of new products, and we expect that the Neonode N2 will ship in excess of 200,000 units.

Thank you for your time today, and with that, we will open up for any questions.

Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer session. (OPERATOR INSTRUCTIONS)

Our first question comes from the line of Gregg Zeoli with Empire Asset Management Company. Please go ahead with your question.

Hey, Dave. Congratulations. How are you?

Good. Thanks Gregg.

I have a question for you regarding your revenue recognition. I am sure you are probably going to get a few of these questions, but I first want to jump in the 2007 numbers. For the year, you shipped 31,000 phones, correct?

That is right.

And 3,100 phones were shipped in the third quarter, right.

That is right.

So that means roughly 28,000 were shipped in the fourth quarter?

Yes. Between 27 and 28, that is right.

Is this just normal growth or can some of this be explained by growth of inventory to some of your distributors? Because that's pretty impressive growth from the third quarter to fourth quarter?

That would be normal growth. And the reason you saw that was because in the third quarter we began to ship about mid-third quarter, and the biggest thing that took place was that we expanded into new markets during the fourth quarter, and so you saw many of those new distributors, or VARs ordering products for their markets.

But the third quarter shipments were primarily to our first customer in Greece, and then a small part into Spain I think. But in the fourth quarter, we went into the Benelux area, we went into Portugal, we went into the Swedish and Scandinavian countries, so we really started expanding the market, and so that is what you saw happening.

Okay, because it seems like the growth from the third quarter to the fourth quarter was roughly 900%, and if you take that number as indicated, that you possibly do 200,000 phones for 2008, it looks like that growth will continue each quarter all the way through at that growth rate?

I expect that to happen, although I expect the quarter we are in right now, will be somewhat similar to the fourth quarter. After the Christmas season or the December, in this industry the first quarter is usually a bit slower, and then I expect it to pick up dramatically in the second and third quarters of the year.

Okay. And back to your revenue recognition and the U.S. accounting standards, there is some ambiguity around that. If I understand correctly, if you ship $10 million in phones, even if you are paid for those phones, you can't book them until the end customer receive the phone?

That is right. One or two things. The payment of cash is completely independent from the recognition of the revenue associated with this. So the customers as I said, some of them actually pay before we actually ship the phones to them. And so we still cannot recognize that revenue until we have sell-through.

Now at the point that we have, we can adequately estimate price protection things, and sell-through, and all of that. We can actually start recognizing the revenue in the future. But the SEC says that takes a year to two years of actual company history. You cannot use industry standards or anything. You have to actually use your own company history. So the revenue recognition and the cash received are completely independent of each other.

Okay. And Dave, is there any I guess timeline on when you finally recognize that revenue? Was it after the price protection disappears. Is it 60 days after you incur the revenue?

Well it depends on sell-through. So we started actually in January recognizing some of the revenues that were deferred because they have been, the phones have been sold. And so I would expect in most cases VARs, as you probably know, the distributors are not in the position of taking a lot of inventory to just sit on their shelves, so most of the time it sells-through rather quickly, as would be my anticipated guess for the future.

So sooner or later you will have an equilibrium here, because even though you are deferring revenue the following quarter, you will start getting revenue from the previous quarter, so at some point you will get some synergies and equalization between quarter and quarter, is that right?

That is right.

That is all of the questions I have. Good quarter, guys.

Thank you.

Thanks.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of [Lilly Wu] with TGRA Capital. Please go ahead with your question.

Yes. Hi. Thanks. I was wondering, the $6.6 million in inventory, is that all finished goods, completed phones which will be moved on to your distributor customers?

Hi, Lilly, this is Dave. The 6.6, a big chunk of that is associated with the deferral of revenue, because at the same time that we deferred the revenue recognition, we actually defer the recognition of the cost of goods, and we move that up into inventory, so we can match in the future the cost of goods against the revenue as it's recognized.

Oh, okay, so a good portion of that inventory is not finished product, it's actually --?

It is actually out on the shelf. It is associated with, it is shipped product. It is actually at the distributor location, so we match the cost of goods against the revenue.

Okay.

Do you follow me?

Yes, I do.

Okay.

Great. Thanks. And Mikael, I was wondering, in the last couple of weeks or days, we have heard companies like Texas Instruments and National Semiconductor, indicate that even within the last few weeks, there has been a weakening in the demand for 3G smart phones that has hit their order books. Are you seeing any of that in terms of from your distributors, feedback about any type of slowing in demand for the high-end smart phones?

Hi Lilly. No, we haven't seen any of that. I read about those things as well. But I think there is still a strong market developing for smart phones and full-feature phones. And there is some contradictory information to what you just mentioned out there as well. So we haven't experienced it, and we are still optimistic and positive about the market outlook.

Okay. And for sales into markets like India or outside of Europe, at this point what type of ASPs are you looking at? Is it also on-par with the $499 level, or are we selling outside of Europe at a lower ASP?

Well if you exclude the VAT and the regulatory pricing issues, we are looking at approximately the same levels of pricing. I think distributor margins and retailer margins may be slightly less in certain markets where you will see a slightly lower price. But in general we are looking at the same price levels.

Okay. Great. Thank you.

Thank you.

Ladies and gentlemen, (OPERATOR INSTRUCTIONS) Our next question comes from the line of Kevin Dede with Morgan Joseph and Co. Please proceed with your question.

Thanks very much. I was curious Mikael if you could give us a little more insight on the licensing model, and how you expect that to work? Given that you have given us some good granularity on the product side.

Hi, Kevin. Yes, our technology has generated a lot of interest from a number of industries as mentioned. So one has to look into the mobile phone industry, but also outside to any type of mobile device, like I mentioned before, PDAs, MP3 players, and so on.

And we think the approach is the actual manufactures, the ODM manufacturers out of Asia, that will have a strong interest in differentiating their product offering to a number of companies. As mentioned before, we are in various stages of discussions with companies that would like to utilize our technology, and it is primarily our hardware technology, zForce, that has generated a lot of traction.

Can you be a little bit more specific on how you are working with your partner here in the U.S. to build those licensing relationships, and how they might look from a business model perspective?

Usually you start with a business model. Usually they are structured in a way that there is some minor fixed revenue, or NRE revenue, which is the cost of actually integrating the technology into a product, and then it's a royalty-based revenue, which may vary depending on the industry, and the complexity of the device.

We are working together with our Company Neonode USA in approaching the ODM level out of Asia, trying that predominantly we are active with a sales team. We are building business models together with customers, anywhere from white papers to blueprints all the way up to putting our technology on the ASIC. So there is a broad range of possibilities to integrate our technology into their devices.

How do you ensure that you would not find some of these potential licensees producing products that might be perceived as very close competitive offerings to the N2?

How? I mean we are very much involved in the integration process of our technology into a device, so I think we will know fairly early on what sort of device they are integrating into. And also I think it is important to underline that one of the core differentiating factors with the Neonode N2 is its software, and that is not [offware] licensed as of now.

Could you give us a little more insight as to what you are expecting internally, as to the ASP decline through '08, and perhaps even '09 on N2?

It would be pure speculation from my side, but usually in this industry you see a quarter to quarter repositioning in double-digit percentage, so 10% or less. So the cost of goods will decline if you have a good volume development. So as I said, it is pure speculation from my side right now, but we would see at least a 10% growing on each quarter through 2008. And then for 2009, you probably see it flattening out somewhere.

Okay. And then last question for me, please, Mikael. Can you give us some insight into your new product development channel, and what you might be doing to, #1, enhance the range of form factors you might offer, and 2, what sort of additional software features you might, we might expect to see?

I would like to refrain from disclosing too much information, because of competitive reasons. But we are moving up from GSM to a 3G platform, and we are refining both our software and our hardware technologies.

There are a number of enhancements and additions that we will do, but I think most importantly from our perspective, we will be doing it towards specific carriers specifications, so it will be easier to be integrated into the carrier's networks, and sold with more carrier subsidies than the N2.

Very good. Thanks very much for taking my questions. And congratulations on the nice job thus far.

Thank you, Kevin.

Ladies and gentlemen, (OPERATOR INSTRUCTIONS) We do have a follow-up question from the line of Gregg Zeoli. Please go ahead with your question.

Dave, this is probably an ambiguous question for you, but I was wondering if you could comment or even speculate about the recent pressure on the stock price? It seems like you have had an abundance of good news, you had robust product sales in the fourth quarter and it looks like you'll continue that growth into 2008, yet we are seeing a recent down pressure on the stock. Do you have any explanation, something coming out that you know of?

You know, I really do not, Gregg. Other than the obvious, that someone is trying to sell. And I don't know if it's a fund out there that needs money that is trying to sell. I don't --no one has called me that owns a lot of shares, and said they are anxious to sell their stock, so I don't know who in particular it is. So I don't know.

I appreciate it. That is my only question. Thanks again.

Our next question comes from the line of [Marcel Chemowitz with M&M Trading Inc.] Please go ahead with your question.

Hi. Good morning guys, great quarter. The markets that you are projecting the 200,000 figure for 2008, does that include the United States or Latin America?

It includes two markets in Latin America, but not all of Latin America, and it does not include the United States.

Conceivably we could see a big jump-up in the estimates that you have given in the United States with a huge market, am I correct.

The United States is a huge market, absolutely. So --

Would you mind giving us the backlog numbers for the previous quarter?

I'm sorry, I didn't hear the question.

Would you be able to give us the backlog amounts for the previous quarter, your quarter ending, fourth quarter, I think you had a $6 million backlog? What is your current backlog?

We haven't released that at this point.

Okay. Are you doing anything with regard to gaining more Street coverage, and being more transparent to the public, because I mean I know a bunch of people would really have the impression that you are a small company selling a few phones out of a kiosk, and I think after this great quarter, I think you guys need more transparency and some road shows, to get more analyst coverage, because you guys have a great story to tell.

We are, that is work in progress, and thank you for pointing that out. We are on the road, and have been on the road in the beginning of this year. We will be on the road doing Investor presentations, and I think our first conference call here, is also proof that we really want to become as transparent as we can be.

And we have taken on a relationship with Allen & Caron as our IR partner, to enhance our capability there. We have employed people at the Company to help us with IR and PR. So we are taking the steps as quickly as we can, to become as transparent and as good as we can be, in telling the public about our Company.

Okay. Regarding the United States market, do you have any projections for the United States market itself?

No public projections, no.

Okay. Great job, guys. Keep up the good work.

Thank you, Marcel.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.